While attending college, Jennifer Fritz and Sarah Nelsonsigned a lease for Apartment H of a 12-unit building owned by Hunters RidgeCondominium Owner’s Association. Paragraph 7(b) of their lease says Fritz andNelson are responsible for “all costs for repairs ? resulting from ?negligent actions or omissions of themselves or their guests.”

During the lease term, Fritz’ friend Clay Pendleton asked ifhe could use Apartment H to clean his Civil War reenactment equipment, which hehad been storing in Fritz’s storage locker. Although neither Fritz nor Nelsonwould be in the apartment that day, Fritz gave Pendleton permission to cleanhis gear on the balcony.

During that day, Pendleton washed his uniform, cleaned hisutensils, and refinished the stock of his replica musket. He stripped thevarnish off the stock with a stripper sprayed from an aerosol can, sanded it,and then applied linseed oil. He used rags from a cotton tee shirt.

When Pendleton finished around 8 p.m., he left the rags onthe balcony, together with the aerosol can, and the can of linseed oil. Fritzand Nelson returned around midnight. At about 4 a.m., a smoke alarm awokeNelson and her screams woke Fritz. They discovered a fire on the balcony,called 911, and fled the building.

The fire did substantial damage to Apartment H and to theentire building. Fire investigators concluded the most likely cause of the firewas spontaneous combustion of the linseed oil-soaked rag Pendleton had left onthe wooden balcony. Linseed oil releases heat as it oxidizes, and if ragssoaked in the oil are not properly ventilated, the heat can increase theignition temperature of the rags.

Allstate Insurance Co., which insured Hunters Ridge, paidmore than $700,000 for the fire damage to Apartment H and the rest of thebuilding. Then Allstate brought this lawsuit against Fritz, Nelson andPendleton for negligence in using and disposing of the linseed oil. Allstatealleged they should have known linseed oil is a fire hazard and, under theterms of the lease, Fritz and Nelson are liable for the negligence of theirguest.

Before trial, Pendleton settled with Allstate, whichdismissed its claims against him. Fritz and Nelson replied there was noevidence of their personal negligence. But Allstate argued the lease terms madethem liable for the fire-loss negligence of their guest, Pendleton.

If you were the judge would you rule Fritz and Nelson can beheld liable to Allstate Insurance Co. for reimbursement of the $700,000 fireloss?

The judge said yes!

Under the law of subrogation, the judge began, an insurersteps into the shoes of its insured to seek reimbursement for any insured losspaid by the insurer. That means Allstate has the legal right to bring any claimthat Hunters Ridge Condominium Homeowners Association could bring against Fritzand Nelson under the lease terms, he continued.

“The Hunter’s Ridge lease could not be clearer inproviding that the tenants are liable for all costs ? resulting from thereckless or negligent actions or omissions of ? tenant’s guests,” thejudge explained. Therefore, Fritz and Nelson are contractually liable to payfor the costs of repairs resulting from the reckless or negligent actions oromissions, if any, of Pendleton, he noted.

However, because Fritz and Nelson are responsible for thenegligence of their guest Pendleton, the extent of that liability is limitedonly to damage to the leased property, which is defined by the lease to beApartment H, the judge ruled. Therefore, Fritz and Nelson are not liable toAllstate for fire-loss damage reimbursement beyond Apartment H., the judgeconcluded.

Based on the 2006 U.S. Court of Appeals decision in AllstateInsurance Co. v. Fritz, 452 Fed.3d 316.

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